Nifty unlikely to end June series above 5670: PhillipCap

Nifty is unlikely to end the June series above 5670, says Vineet Bhatnagar, MD, PhillipCapital.

In an interview to CNBC-TV18, Bhatnagar says some of the largecap front-line stocks that are showing strength may come under pressure in the last hour of trade. He believes HDFC Ltd., ICICI Bank, HDFC Bank, Ranbaxy Laboratories, Sun Pharma, JP Associates, Bata India, Dish TV, Hindustan Petroleum Corporation (HPCL), Tata Global Beverages and a host of them from both the midcap and front-line stocks could face some pressure in the last half hour of trade today.  Also Read: See Nifty heading to 5400; sell on rallies: Edelweiss
Going forward, he believes Nifty will not break 5477 in July but will remain rangebound in the first week. Below is the verbatim transcript of Vineet Bhatnagar's interview on CNBC-TV18 Q: It has been a terrible June series. On what note do you see it expiring?
A: It will expire pretty much in the same region that we are seeing the market right now. We do not see market expiring above 5670 today. Looking at the rollovers that were marginally below the average for the single stock in Futures, some of the largecap front-line stocks that are showing some strength may come for some level of weakness in the last half an hour today during the volume-weighted average price (VWAP) of the expiry. Q: What kind of levels do you expect to see in July even in terms of a band for the market?
A: We are looking at a band of 5500-5800 in the first one week or so for the July month. We are not taking a call in terms of the way July will expire when we come to the next month, but at the moment what we are clear about is that 5477 should not be broken. For that to happen, the levels that we saw Wednesday should be a good support. At the same time, if there is a close above 5671 either today or tomorrow as a follow-through of this trend that we are seeing this morning, we should be inching towards 5750. So the trading range that we are looking at for the first 5-7 days in July is 5500-5800. Q: On and off over the last 10 days we have seen some shorting by the institutions. What will the foreign institutional investors (FII) be doing going into the next series?
A: From Wednesday, there was some very small level of short covering in the index Futures segment. The last 10 days alone have been quite a remarkable reversal of what we have seen at the beginning of the month in June. All the FII long positions that were built in the first week of June got negated by their cumulative sell in the index Futures segment till Wednesday. Now, there is a net USD million worth of index Futures sell that we are able to see in the FII client segment.

Q: Do you see the possibility of any large scale short covering if the market goes above 5700 or goes to 5750 or is that a remote possibility?
A: In terms of the single stock Futures universe which is where the shorting opportunity may have transpired for some of the smart traders or short-term traders was not something which was quite intense. What was more visible was a reverse arbitrage which was a characteristic of an arbitrage book that some of these large banks have in their prop desks.
What was visible was more on the index Futures side and therefore, the short covering if it were to come about, the way we witnessed in small measures on Wednesday could be the one which could be a lift up as far as 5750 and higher levels are concerned for Nifty.
_PAGEBREAK_ Q: What have you made of the spike in volatility over the last seven days? The India VIX has gone back to 21 plus. Is it suggesting a breakout that might have deeper ramifications than just a near-term correction?
A: It could be quite the opposite. I am not forecasting the VIX or the at-the-money (ATM) volatilities in the Options space are going to taper off very quickly. We may be heading towards a lower volatility regime after few weeks. This is only because the intense and hurried interpretation of Bernanke's speech was overdone.
The data as it came out last night in the US should cool the nerves for most of the global players about the tapering off and as to when it will start. In light of that, the volatility spike that we saw in the last couple of weeks should start tapering off and we could look at sub-20 numbers for India VIX by the time July comes for an expiry. Q: You were earlier talking about the risk of some heavyweight faces seeing shorting pressure in the last half hour today. Which ones stand out?
A: Our own analysis suggests that names like HDFC Ltd., ICICI Bank, HDFC Bank, Ranbaxy Laboratories, Sun Pharma, JP Associates, Bata India, Dish TV, Hindustan Petroleum Corporation (HPCL), Tata Global Beverages, a host of them from both the midcap and front-line stocks could face some pressure in the last half hour of trade today. Q: It has been a stunning fall for the Bank Nifty this series. Are people still treating that as the lead indicator for the market and are short positions being rolled over on that?
A: Bank Nifty as an instrument, we have seen quite a hectic activity in terms of shorting this particular index Futures. There will be a tendency to rollover the short positions into July. Q: What kind of positioning do you see in oil and gas ahead of that crucial meeting today in New Delhi?
A: Reliance Industries (RIL) is holding up very well around all the gas pricing related news that is expected to come out soon. It is getting clear from the sources in Delhi that the gas price will be announced at about USD 6.7 which is a nice improvement over the current price of about USD 4.8.
While the Finance Ministry has been pushing for an export parity price of USD 8, it appears that the Petroleum Ministry will stick to USD 6.7 for the moment. USD 6.7 is a good improvement and therefore, RIL and some of the oil marketing companies (OMC) should benefit and must see some support. Q: What strategy are you recommending to your clients for the first bit of the July series if the market maybe stuck between 5500-5750?
A: It is a simple call of selling one Call of 5800 strike and one Put of 5500 strike. You can take home as much as about 130 points. That is a strategy that we are recommending for the first one week. Stops need to be put in place. Keep a watch for levels like 5530 and 5750. Q: There has also been a trend of weakness in auto faces, especially stronger stocks like Maruti, Tata Motors. Have you witnessed a lot of shorting pressure there or conversely people unwinding longs?
A: Tata Motors has been more of a standout in that particular space and that seems to be quite visible. There seems to be an analysis where a level of Rs 235 has been talked about. That stock stood out in terms of the shorting pressure or the short trades that people may have taken in the market.